Adventis FMC Level 1 Exam Complete
Solutions | Already Passed| Verified
what is working capital a measure of? - ✔✔- a company's
efficiency - short term financial health
working capital equation - ✔✔non-cash current assets - non-debt current liabilities
what does a positive or negative working capital indicate? - ✔✔whether it's a source or use of cash
what can happen if a company's non-cash current assets < non-debt current liabilities? - ✔✔may run
into challenges repaying creditors and suppliers in the short run
non-cash current assets - ✔✔- non-cash assets expected to be turned into cash within one year
- Ex: accounts receivable, inventory, prepaid expenses, other assets
non-debt current liabilities - ✔✔- all obligations besides short-term debt that are due within one year
- Ex: accounts payable, accrued liabilities, other obligations
what is a less expensive form of capital? - ✔✔debt because it's less risky
what types of claims to debt owners have? - ✔✔priority claims on company's assets if company
goes bankrupt
,what is a more expensive form of capital? - ✔✔equity because equity holders aren't guaranteed to
get their investment back if the company goes bankrupt
what requires a higher rate of return, debt or equity? - ✔✔equity
net debt - ✔✔total debt - cash
what is net debt primarily used in? - ✔✔credit analysis because creditors assume that the company's
cash balance could be applied to debt repayment in the event of a liquidity crunch or bankruptcy
what does the cash flow statement show? - ✔✔- how much cash is generated or lost during a period of
time
- how changes in the balance sheet and net income affect cash
what does the cash flow statement reconcile? - ✔✔net income to change in cash
what is the cash flow statement useful for in determining - ✔✔- a company's viability; it's ability to
pay bills
- liquidity
cash from operating activities - ✔✔- cash generated by a company's normal business
operations - Ex: net earnings, depreciation and amortization, change in working capital
, cash from investing activities - ✔✔- acquisition and disposal of long-term investments (PPE and M&A)
- Ex: capital expenditures, acquisitions
cash from financing activities - ✔✔- cash flow between organization and its owners and creditors
- Ex: debt/equity issuances (change in debt), dividends, share repurchases
beginning cash balance - ✔✔ending cash balance for previous period of time
change in cash - ✔✔sum of cash from operating, investing, and financing activities
ending cash balance - ✔✔sum of beginning cash balance and change in cash
depreciation and amortization - ✔✔method of allocating the cost of an asset over its useful life for
both accounting and tax purposes
how is depreciation and amortization shown on the income statement? - ✔✔as an expense
why doesn't depreciation and amortization represent a decrease in cash? - ✔✔it doesn't represent a
decrease in cash because cash only leaves the company during the initial purchase of the asset (CapEx)
what does depreciation and amortization represent in terms of cash on the cash flow statement? -
✔✔a source of cash
Solutions | Already Passed| Verified
what is working capital a measure of? - ✔✔- a company's
efficiency - short term financial health
working capital equation - ✔✔non-cash current assets - non-debt current liabilities
what does a positive or negative working capital indicate? - ✔✔whether it's a source or use of cash
what can happen if a company's non-cash current assets < non-debt current liabilities? - ✔✔may run
into challenges repaying creditors and suppliers in the short run
non-cash current assets - ✔✔- non-cash assets expected to be turned into cash within one year
- Ex: accounts receivable, inventory, prepaid expenses, other assets
non-debt current liabilities - ✔✔- all obligations besides short-term debt that are due within one year
- Ex: accounts payable, accrued liabilities, other obligations
what is a less expensive form of capital? - ✔✔debt because it's less risky
what types of claims to debt owners have? - ✔✔priority claims on company's assets if company
goes bankrupt
,what is a more expensive form of capital? - ✔✔equity because equity holders aren't guaranteed to
get their investment back if the company goes bankrupt
what requires a higher rate of return, debt or equity? - ✔✔equity
net debt - ✔✔total debt - cash
what is net debt primarily used in? - ✔✔credit analysis because creditors assume that the company's
cash balance could be applied to debt repayment in the event of a liquidity crunch or bankruptcy
what does the cash flow statement show? - ✔✔- how much cash is generated or lost during a period of
time
- how changes in the balance sheet and net income affect cash
what does the cash flow statement reconcile? - ✔✔net income to change in cash
what is the cash flow statement useful for in determining - ✔✔- a company's viability; it's ability to
pay bills
- liquidity
cash from operating activities - ✔✔- cash generated by a company's normal business
operations - Ex: net earnings, depreciation and amortization, change in working capital
, cash from investing activities - ✔✔- acquisition and disposal of long-term investments (PPE and M&A)
- Ex: capital expenditures, acquisitions
cash from financing activities - ✔✔- cash flow between organization and its owners and creditors
- Ex: debt/equity issuances (change in debt), dividends, share repurchases
beginning cash balance - ✔✔ending cash balance for previous period of time
change in cash - ✔✔sum of cash from operating, investing, and financing activities
ending cash balance - ✔✔sum of beginning cash balance and change in cash
depreciation and amortization - ✔✔method of allocating the cost of an asset over its useful life for
both accounting and tax purposes
how is depreciation and amortization shown on the income statement? - ✔✔as an expense
why doesn't depreciation and amortization represent a decrease in cash? - ✔✔it doesn't represent a
decrease in cash because cash only leaves the company during the initial purchase of the asset (CapEx)
what does depreciation and amortization represent in terms of cash on the cash flow statement? -
✔✔a source of cash
